Kevin Drum - December 2008

Happy New Year!

| Wed Dec. 31, 2008 7:00 PM PST

HAPPY NEW YEAR!....As you can see, Inkblot is gazing confidently in the direction of 2009. Or something. You sort of have to use your imagination here.

(I gotta tell you, it's hell getting these cats to do something visually interesting on holiday occasions. If it's not dinner, they're not interested. Maybe I need a parakeet or something.)

In any case, Happy New Year from both humans and felines here at Chez Drum. It's just about 6 pm here on the west coast, guests are starting to arrive, dinner will be on the table in a little bit, and it's time for me to write my final blog post of 2008. So here's hoping that 2009 turns out to be better than any of us expect. Huzzah!

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My Blogosphere Whines For 2009

| Wed Dec. 31, 2008 10:59 AM PST

MY BLOGOSPHERE WHINES FOR 2009....Today is New Year's Eve, so here are my top ten whiny, blog-related pet peeves. They are in no particular order:

  1. Blogs without comment sections. Or, blogs with comment sections that require you to go through some kind of painful registration process just to leave a one-sentence note.
  2. Bloggers who don't put their email addresses somewhere on the blog. I don't mind looking around for it a bit (keeps the mind sharp, you know), but put it somewhere, OK?
  3. Blogs that provide only partial RSS feeds. See also point #5, which actually bugs me a lot more.
  4. Bloggers who are too damn lazy to check their links after they post something. Come on, people.
  5. "Teaser" blogs that put only the first paragraph or two on the main page and force you to click "continue" if you want to read the whole thing. This is both annoying and pointless. It only takes a second or two to scroll past a blog post you don't want to read, after all. (Yes, I'm talking about you, Felix Salmon.)
  6. People who say "blog" when they really mean "blog post."
  7. Blogs with lousy (or nonexistent) search capability. Mine, for example.
  8. Top ten lists that are plainly larded with filler because the listmaker couldn't actually think of ten things to write about.
  9. Bloggers who can't count.

I fully expect these problems to be completely resolved starting tomorrow — or, at the very least, on January 20th. If they aren't, a blue ribbon commission will be appointed to deal with them. You have been warned.

Fun With Rebates

| Wed Dec. 31, 2008 10:46 AM PST

FUN WITH REBATES....Felix Salmon thinks the Obama economic team is showing its behavioral economics roots. Why? Because their proposed tax rebate will come a little bit at a time by reducing tax withholding in paychecks:

The point of a stimulus package, of course, is to boost spending. And hiding a tax rebate in slightly higher take-home paychecks seems like a good way of doing that: even people who save a certain amount of money every month still tend to spend the rest.

I guess that's true. Send me a $1,000 check, and there's a good chance I'll use it to pay down my credit card. Reduce my withholding by $20 a week for 50 weeks, though, and I'll probably just blow it on beer and fritos. And that's consumption, my friends!

Crystal Ball Hell

| Wed Dec. 31, 2008 10:29 AM PST

CRYSTAL BALL HELL....Tom Petruno surveys the year's "most infamous pronouncements" as the economy melted down around our ears. It probably could have been a longer piece, but his editors wouldn't let him take over the entire business section for the day.

Welcome to California

| Wed Dec. 31, 2008 10:23 AM PST

WELCOME TO CALIFORNIA....I see in my morning paper that California cities are engaging in ever more sleight of hand to fund local improvements. Here's a typical arrangement, concocted by John Kim, an advisor with a Los Angeles investment bank. Be sure to read closely:

Oxnard is one of Kim's clients. In 2007, the city wanted to issue bonds to finance part of its $150-million street repaving project, using its share of state gas tax revenue to repay the debt. But the state Constitution says local governments can't issue debt against that revenue.

That's where Kim came in. His plan: The Oxnard City Council would sell the streets to the Oxnard Finance Authority, which consists of the council and mayor. The Finance Authority would issue bonds to raise money for the improvements and repay the bondholders by selling the streets back to the city.

Where would the city get the money to buy the streets? From its gas tax revenue.

So: the left hand isn't allowed to issue a bond, so it sells the streets to its right hand. The right hand issues a bond, then pays off the bond by selling the streets back to its left hand. Everyone's happy!

Needless to say, this costs more than just issuing a standard bond in the first place, but California cities do it because they know voters won't approve a normal bond issue. Welcome to fantasyland, aka the Golden State, in which voters over the years have convinced themselves that it's possible to have lots of services, great roads, and wonderful schools without paying taxes. And to make it even worse, the taxes we've cut back most heavily on (property taxes and vehicle license fees) are the ones that are the steadiest sources of revenue in varying economic climates — unlike things like capital gains taxes and income taxes, which are highly sensitive to economic conditions. As a result, state revenues bounce around wildly when the economy goes up and down, and every few years we find ourselves in yet another crisis, each one worse than before.

This year's, of course, is the mother of all crises, and we're just about out of smoke and mirrors. 2009 promises to be a very, very un-fun year here.

Chart of the Day - 12.31.2008

| Wed Dec. 31, 2008 9:42 AM PST

CHART OF THE DAY....The latest Pew poll shows that this year, for the first time, more people say they get "most" of their national and international news from the internet than from newspapers. Obviously this is slightly misleading, since internet largely means newspaper web sites, but it's still sort of a bellwether statistic.

My question: what happened this year? For the past three years the number of people who got their news mostly from the internet stayed (surprisingly) pretty level at a little over 20%. Then, suddenly, this year, it skyrocketed to 40%. Is this solely because of the presidential election, which became an internet phenomenon? Maybe, although the election came in at a weak #4 in the top news stories of 2008, so that doesn't seem like enough to account for it. In any case, the bulk of the switch appears to been among the young:

For young people [] the internet now rivals television as a main source of national and international news. Nearly six-in-ten Americans younger than 30 (59%) say they get most of their national and international news online; an identical percentage cites television. In September 2007, twice as many young people said they relied mostly on television for news than mentioned the internet (68% vs. 34%).

The percentage of people younger than 30 citing television as a main news source has declined from 68% in September 2007 to 59% currently.

So among young people, TV has gone from a 68-34 winner in 2007 to a 59-59 tie in 2008. That's a huge change in only 12 months.

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Yet More Cap and Tax

| Tue Dec. 30, 2008 5:46 PM PST

YET MORE CAP AND TAX....A couple of days ago I mentioned that a generic carbon tax would raise the price of gasoline by only a little bit, and since gasoline use is pretty inelastic this means it wouldn't reduce consumption much. Because of this, we probably need more than just a carbon tax if we seriously want to cut gasoline use. David Roberts comments:

Kevin Drum grasps this basic problem, but for some reason the separate policy he favors is ... a higher gas tax.

But if a price signal is blunted by low elasticity, is the best solution simply to jack up the price?....If we are so hell-bent on getting people out of inefficient vehicles — and we certainly should be — why don't we take a more direct route? Why don't we try to directly increase elasticity of demand by creating more low-carbon alternatives? Build the crap out of public transit. Buy gas guzzlers off the road through junker programs. Issue a new ruling that the government will only buy plug-in hybrid or electric vehicles. Raise CAFE standards to 60 mpg and pay the Big Three off with stimulus money (they're probably going to get it anyway).

Just for the record, I pretty much agree. Price signals are important as a backbone policy (you can think of them as sort of like a tailwind that helps everything else along), and since gasoline use responds slowly to price hikes I think a mixed carbon trading/gas tax policy that raises the price of gasoline heavily is a good idea. Still, it's absolutely true that you often need more than just a tailwind. If you want better gas mileage, you can get it way faster by increasing CAFE standards than you can by jacking up the price of gasoline. Getting rid of gas guzzlers is another good idea, and I'm also a fan of a revenue neutral feebate that's based on gas mileage (you get a rebate when you buy a car with exceptionally good mileage and pay a fee on cars with exceptionally bad mileage). There are probably plenty of other good ideas out there too, many of which I haven't even heard of.

Still, generally speaking, taxes and carbon trading are more efficient regulatory mechanisms than command and control, so the more you can rely on them the better. For that and other reasons, I remain in favor of trying to increase carbon prices fairly heavily, and gasoline prices even more heavily. It's true that you have to do this carefully to avoid making the price hikes into a de facto regressive tax, but there are pretty good policy mechanisms available for achieving fairness. It's time to get started.

At a Loss for Words

| Tue Dec. 30, 2008 4:32 PM PST

AT A LOSS FOR WORDS....In case you're wondering what I think about Rod Blagojevich having the balls to appoint a replacement to Barack Obama's Senate seat, I don't really have the words for it. I mean, what can you say about something like this? Blagojevich is obviously living in his own personal looking-glass land these days.

Still, the silver lining here is that maybe this will give the Illinois legislature the kick in the butt it needs to get cracking on impeachment. Maybe.

Housing Market Continues to Suck

| Tue Dec. 30, 2008 3:51 PM PST

HOUSING MARKET CONTINUES TO SUCK....Housing prices are still plunging:

Home values in 20 large metropolitan areas across the country dropped at a record pace in October as the fallout from the financial collapse reverberated through the housing market, according to data released Tuesday.

...."October was clearly the free-fall month," said David M. Blitzer, chairman of the index committee at Standard & Poor's. "Everything was going against us in October, without exception."....Prices are falling at the fastest pace on record, a sign that the housing market is a long way from recovery.

The housing market is obviously in terrible shape, but for what it's worth, I think the idea that October was uniquely bad is slightly miscast. As you can see in the Case-Shiller index at right, housing prices began plunging at a rate of 2-3% per month in October 2007, moderated a bit starting in May 2008, and then resumed their 2-3% monthly decline in September. It's not so much that we're suddenly seeing record declines, as it is that the record declines that started last year got interrupted for a few months this summer and are now back in business. But this is no surprise: the Case-Shiller index is still only down to 158, and we've always known that it's not going to stop much before it gets into the 100-120 range. What's more, rapid declines aren't entirely bad news. We're probably better off getting to 100 sooner rather than later, since economic recovery almost certainly can't start until housing prices bottom out.

In the meantime, of course — and I say this as someone currently trying to sell a house — the news is grim every direction you look. Even at 2-3% per month, we've got at least another year before the housing market starts to reach its natural level. Until then, we're screwed.

*The Stimulus Bill

| Tue Dec. 30, 2008 11:37 AM PST

THE STIMULUS BILL....Tim Fernholz points to this Bloomberg piece about Mitch McConnell's reaction to a massive stimulus bill:

"A trillion-dollar spending bill would be the largest spending bill in the history of our country at a time when our national debt is already the largest in history," McConnell, a Kentucky Republican, said in a statement. "As a result, it will require tough scrutiny and oversight. Taxpayers, already stretched to the limit, deserve nothing less."

McConnell called for giving lawmakers and the public at least one week to review the legislation once it has been written. He also said he wanted Senate committee hearings on the measure, rather than immediate floor consideration.

Italics mine. Obviously McConnell is just trying to rustle up opposition to the bill, and his tired invocation of "fraud and waste" harkens back to equally tired Republican opposition to the WPA in FDR's day. It's pretty weak tea. Still, I'll give him a pass on this. If the public stance of the Democratic leadership during a Republican presidency was a request for one week of hearings and review on a $700 billion measure, that would seem pretty reasonable to me. Coming from a Republican during a Democratic presidency, it seems pretty reasonable too. I'll bet McConnell gets that and more. Hopefully, the days of thousand-page bills coming out of conference and getting sent to the floor within 24 hours died when....

....Mitch McConnell's party lost control of the Senate. I say, let it stay dead.